Category Archives: Cyclical Trends

The Lending Cycle

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Bitcoin Cycles: 2010-2022

The following are the established Bitcoin cycles since 2010 which are instrumental in our forecasting of the market price for Bitcoin going forward.

Up Cycles

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Down Cycles

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Cycle charts Continue reading

1985-2021: Nasdaq Volume Cycle Studies

This study entails what we believe to be the most appropriate method for deciding WHEN TO BUY (not sell) based on the changes to the Nasdaq Composite Index trading volume. Continue reading

1870-2033: Real Estate Cycles

The history of real estate cycles should inform how to analyze the market.  However, there is an abundance of analysis without a review of the history, which generates conclusions that are unrelated to how the real estate market works.  Additionally, symptoms are given more prominence than the causes leading investors, speculators, buyers, and sellers down a path of misunderstanding.

Below is a chart of the real estate cycle from 1870 to 2033. Continue reading

2020 Year to Date Investment Returns

Below is a chart of investment returns for various instruments as published by Business Insider.  This includes the top three low yield stocks of the Dow Jones Industrial Average.

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Interest Rate Cycle Comparison

1940-2020: The Full Interest Rate Cycle

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Reasonable assumption on interest rates should be done based on relative or comparable starting points.  With interest rates at secular lows, we should only compare rate activity from the 1940 to 1980 period which was a secular rising trend while avoid comparing rate activity to the 1980 to 2008 period.

Fastest Rate Increase, From the Low

Below we compare the rate increase of the 3-Month Treasury from the secular low in 1940 at 0.01% to the rate increases from the 2011 low at 0.01%.

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From the level of 0.01% to 2.39%, the rate of increase was exaggerated for the period from 2011 to 2019 compared to the period of 1940 to 1956.  The currently level of volatility is not unexpected for the early phase of the secular rising rate trend.

The Nasdaq Will Surprise Everyone

Review

On November 29, 2012, in an article titled “Dow Theory: Secular and Cyclical Markets“, we said the following:

“A common timeframe for our version of secular periods averages around 18.8 years based on the previous five periods.  This suggests that if the 2000 peak holds then the secular bear market should end in the years between 2016 to 2023.”

On January 1, 2018, in an article titled “Dow 130,000 by 2032”, we said the following:

“This is the first posting for 2018 and we want to be clear about what we see for the market.  Dow 130,000 is not specific to 2018 but to the secular market trend that we are in.”

In this article, we outline how the Nasdaq Composite is just getting warmed up.

Questions Remain about the Nasdaq

There is considerable concern about the run-up in the Nasdaq Composite Index.  Understandably, the run from the March 23, 2020 low has been meteoric.

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Any major index that increases +75.73% in less than a year has got some technical and fundamental reversion to the mean ahead.  Applying Dow Theory (which encompasses fundamental, economic, and technical analysis) we arrive at downside targets to consider in the chart above.

How good is any talk of “reversion to the mean” or “Dow Theory” or downside risk considerations?  Let’s take the Dow Jones Industrial Average when it was almost at the same levels from the period of March 9, 2009 to the high on March 9, 2012.

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Naturally, the indexes are different, the rate of increase is different, the time is different.  However, The price levels are essentially the same.  Since reasonable market analysis begins with precedent, we believe that what happened to the Dow Jones Industrial Average in 2009-2012 period is a decent starting point for the Nasdaq Composite.

As the ascending lines of the Nasdaq Composite show, as part of Dow Theory, the index has the following downside targets without raising any alarms:

  • 9,747.21
  • 9,458.56
  • 8,592.59

We’ve only added the 9,747.21 level because it is the first target that was achieved in the Dow Jones Industrial Average before the index reversed to the upside “permanently.”

Another concern brought up is the fact that the Nasdaq Composite valuation levels are extremely stretched.  This is a legitimate concern.  However, as noted below, the current rise in price is not beyond what has occurred for the index in the past.  In fact, the current increase is relatively modest in comparison.

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Valuations matter, however, the precedent for the actual change in the index, in the five prior periods, noted in the table below based on the chart above, suggests that there is significant opportunity for additional dramatic change going forward.

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Finally, there is the issue of secular bear and bull markets.  In our January 3, 2018 article titled “Dow 130,000 by 2032”we said the following:

“…this suggests that if the 2000 peak holds then the secular bear market should end in the years between 2016 to 2023.”

By 2018, it was clear to us that the secular bear market had come to an end (as opposed to our call that the cyclical bear market ended on August 23, 2009).

Looking at the Nasdaq Composite from 2000 to 2016, we see a period of 16 years which the index did not exceed the prior peak.  According to Dow Theory, this formation is considered a line.  According to Dow Theorist Robert Rhea:

Such a narrow fluctuation, to the experienced student of the averages, may be as significant as a sharp movement in either direction.

Rhea, Robert. The Dow Theory. Barron’s (1932). page 82.

Looking at the price change of the Nasdaq Composite, it is hardly a “narrow line” when the index goes from 5,046.86 to 1,119.40.  This is unless the index range is in question is looked back upon and realized as a narrow range.

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When the Dow Jones Industrial Average experienced a similar line, from 1965 to 1982, the index traded in a range from 1000 to 539.  Looking back at those levels, compared to the current 28,000, seems laughable to compare.  We believe that at some point in the future, we’ll be looking back at the 5,000 on the Nasdaq Composite as a quaint notion.

Why is a “line” so important?  Because in the time that passes (16 years) giant tech companies have innovated, generated earnings, and in some cases initiated dividend payments.  The wealth generated in the last 16 years has not been accurately reflected in the index.  What is currently being seen is the index catching up to the moderate to high level of wealth creation that has occurred since 2000.

Conclusion

When compared to the Dow Jones Industrial Average at the same price levels from 2009 to 2012, the Nasdaq Composite needs to correct but there is more room to run.  That is if the comparison between the indexes is appropriate.

When viewed from the year-over-year price activity since the inception of the index, the Nasdaq Composite has had a moderate run.

When looking at the Nasdaq Composite from the 2000 peak to 2016, the period of doldrums and underperformance has to be made up.

All we can do is watch and wait.  So far, the market is behaving as expected considering the circumstances being presented to us.

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Investors Title Cyclical Trends

Illiquid as the stock is, we outline the cyclical trends in Investors Title Company (ITIC) from 1986 to the present. The fundamentals are exceptional for Investors Title however, the technicals are needed to temper excessive enthusiasm. Continue reading

Amazon.com: Cyclical Trends

Below is a chart of Amazon.com (AMZN) from 1997 to 2019.

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In the charts that follow, we break down the percentage change in each cyclical rise and decline of  Amazon.com.  These cyclical changes put into perspective the current rise and help to gauge what to expect when the next cyclical decline arrives. Continue reading

Costco: Cyclical Trends

Below is a chart of Costco Wholesale Corp. (COST) from 1986 to 2019.

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In the charts that follow, we break down the percentage change in each cyclical rise and decline of  Costco.  These cyclical changes put into perspective the current rise and help to gauge what to expect when the next cyclical decline arrives while suggesting there might be more room to the upside. Continue reading

Crude Oil: Cyclical Trends

Drawing from the data provided by the Federal Reserve Bank of St. Louis, we have outlined the cyclical trends in the price of Crude Oil: West Texas Intermediate (DCOILWTICO) from 1986 to 2019.

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In the period from 1986 to 1998, crude oil experienced a full cycle that included an increase of +279% and a decline of -73%.

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In the period from 1998 to 2001, crude oil experienced a full cycle that included an increase of +243% and a decline of -52%.

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In the period from 2001 to 2008, crude oil experienced a full cycle that included an increase of +729% and a decline of -79%.

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In the period from 2008 to 2016, crude oil experienced a full cycle that included an increase of +274% and a decline of -76%.

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In the period from 2016 to the present, oil has experienced a cycle that included an increase of 195% and a decline of -42%.

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The data from the peak in 2018 to the most recent low at $44.48 is provided to reflect the cycle up to this point in time.  The table below reflects the date, price, and percentage change (excluding the peak to trough from June 2018 to December 2018). When all declining periods are included, the average decline is -65.04%.

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Our assessment of the data, as is commonly the case, is to default to the most conservative scenario.  In the case of the latest decline in the price of oil from June 27, 2018 to the present, we calculated the decline of -52.98% as a possible turning point for the price of oil.  A decline to such a level would bring the price of oil to $36.40, an additional decline of -29.40%.

Bitcoin: Cycles 2010-2019

The following are the established Bitcoin cycles since 2010 which are instrumental in our forecasting of the market price for Bitcoin going forward.

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In the period from July 2010 to November 2011, Bitcoin increased +42,185.61% and decreased from the peak -93.07%.

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In the period from November 2011 to August 2013, Bitcoin increased +11,119.51% and decreased from the peak -71.16%.

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In the period from April 2013 to October 2014, Bitcoin increased +1,629.35% and decreased from the peak -84.54%.

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In the period from October 2014 to May 2019, Bitcoin increased +10,811.01% and decreased from the peak -83.48%. Our October 7, 2014 recommendation of Bitcoin at $334.09 found here.

Bitcoin Archives

Hang Seng Index: Cyclical Trends

Below is a chart of the Hang Seng Index (HSI) from 1986 to 2018.

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In the charts that follow, we break down the percentage change in each cyclical rise and decline of the HSI. Continue reading